UK Establishment vs Limited Company: Key Differences Explained
17 September 2020
If you’re considering launching or expanding operations in the UK, selecting the right business structure is a critical first step.
The two most common options are a UK Establishment or a UK Limited Company. These structures differ significantly in terms of legal identity, liability, compliance obligations and tax treatment.
This guide offers a clear overview of the key differences between the two structures, helping you weigh your options and understand which route may best support your business goals.
Whether you’re a multinational entering the UK for the first time or a growing business refining your setup, ZEDRA can help you identify the most appropriate structure based on your goals, risk profile and operational needs.
The comparison below outlines the main legal, regulatory and tax differences between a UK Establishment and a UK Limited Company. While both allow overseas businesses to operate in the UK, they differ in how liability, compliance and reporting are managed.
UK Establishment | Limited Company |
|---|---|
| No legal identity distinct from the overseas parent company, which is liable for debts that may be enforced against overseas assets (subject to International Law). | Separate legal identity. |
| Unlimited liability. | Liability is limited to the extent of the share capital (minimum £1); can own property, sue and be sued, contract in its own right, and is liable for its own debts. |
| Registration is required with the UK Public Body, Companies House. | Registration is required with the UK Public Body, Companies House. |
| A copy of the certified and translated constitutional documents of the overseas parent company must be filed. | New constitutional documents are created under which the new company is to be operated. |
| A statutory audit is not a legal requirement. |
A statutory audit is a legal requirement if 2 of the following thresholds are exceeded for the worldwide group: 1) a revenue of £10.2m 2) total assets at the reporting period end totalling £5.1m 3) average employees throughout the reporting period of 50 |
| Not subject to UK Company Law (although some less onerous obligations for overseas companies do apply). | Needs to be operated in accordance with UK Company Law so details of certain changes to the Company need to be filed with Companies House, as well as a Confirmation Statement annually. |
| The accounts of the overseas company which owns the UK Establishment must be filed at Companies House, where they become public domain information. | The statutory accounts of the UK company (but not the overseas parent) must be filed at Companies House where they become public domain information. |
| A UK Establishment may be perceived as being less committed to the UK market. | A UK company usually portrays a better local image and is a more credible vehicle. |
| Director and Company Secretary of the overseas parent company must be registered. | Director (and Company Secretary – recommended, but no longer required by law) are appointed as company officers and a UK Registered Office is required. |
| UK Establishments are not subject to the PSC disclosure requirement. | Persons of Significant Control – individuals or specific types of entities with significant control over the UK company must be identified and registered. |
| A UK based Permanent Representative (individual) can be appointed. | A UK based Permanent Representative (individual) is not required. |
| The authority of the Permanent Representative is set out in the application to register the UK Establishment. Note: even if the authority is limited, this will not necessarily protect the company where a third party relies on any actions of the Permanent Representative in good faith. | The authority of the Officers of the UK company is set out by statute and case law. |
| Service of documents can only be made to the Permanent Representative or other persons authorised to accept service, who must be named at the time of the application to register the UK Establishment. | Service of documents can be made to the Registered Office. |
| Gains on subsequent disposal of UK assets will generally be subject to UK Tax. | Gains on eventual disposal of the UK shares will usually not be subject to UK Tax, unless a shareholder is a UK resident individual. |
| Royalties/interest paid by a UK Establishment to the foreign HQ is not tax-deductible. | Royalties and interest paid by a UK company to its foreign affiliates are tax-deductible, provided they are at arm’s length. |
| UK Tax losses can be set off against the profits of the overseas parent. | UK tax losses cannot usually be utilised against the profits of the overseas parent. |
| UK Establishment Tax Returns will need to be filed in both jurisdictions. The UK Establishment is only taxed on UK profits, which may be more difficult to distinguish. | The company will need to submit a UK Tax Return and is liable to tax on its worldwide profits. The company’s profits should be easy to distinguish. |
If you are starting or have recently started a business in the UK, we can help you identify the most appropriate business structure to suit your needs. The right structure will depend on several factors — including taxation implications, legal entity type, ownership and liability.
Please contact The Global Expansion Team to find out more or to discuss your specific circumstances.
Frequently Asked Questions
A UK Establishment is the registration of an overseas parent company that operates in the UK. It does not have a separate legal identity from the overseas business, and the parent company remains liable for its debts and obligations.
A UK Limited Company is a separate legal entity registered in the UK. It can own property, enter contracts, and is liable for its own debts. Liability is limited to the amount of share capital.
A UK Establishment is legally part of its overseas parent, while a Limited Company is an independent legal entity. They differ in liability, tax treatment, compliance requirements and how they are perceived in the UK market.
In a UK Establishment, the overseas parent company is liable for all debts, which may be enforced against its overseas assets, subject to international law.
In a UK Limited Company, liability is limited to the share capital invested. The company is responsible for its own debts and legal obligations.
A UK Establishment is not legally required to undergo a statutory audit. A Limited Company must have an audit if at least two of the following are exceeded: revenue of £15 million, total assets of £7.5 million, or an average of 50 employees.
Yes. Both a UK Establishment and a UK Limited Company must be registered with Companies House, the UK’s public corporate registry.
A UK Establishment is not governed by full UK Company Law but must comply with certain obligations for overseas companies. A Limited Company, by contrast, must operate in full accordance with UK Company Law.
A UK Establishment is taxed only on its UK profits, while a Limited Company is taxed on its worldwide profits. UK tax losses from an Establishment can be set against the profits of its overseas parent, which is not usually possible for a Limited Company.
A UK Limited Company generally presents a stronger local image and is seen as a more credible vehicle for UK operations, while a UK Establishment may appear less committed to the UK market.
